Chaos Theory and the Financial Markets

The word Chaos is described by the Merriam-Webster Dictionary as :”..the confused unorganized state of primordial matter before the creation of distinct forms”.
Chaos theory is described at:”..a branch of mathematical and physical theory that deals with the nature and consequences of chaos and chaotic systems.” There is a solid link between this form of mathematics, and the financial markets.

The Financial Markets all operate based on Supply and Demand of the goods in those market; Stocks, Bonds, Forex, etc. One may look at the ‘Chaos’ surrounding these markets and decide that there is absolutely no viable trend to speak of when it comes to the market actions. The idea that there is some order to be found in market dynamics is impossible.

Well, this is not entirely true.

Yes, there are fundamental items that come into play that will cause movements in the markets that may not be predictable or otherwise foreseen. However, there are still ways for us to look for patterns in in pricing and at the macro level looking for the familiar “Sine Curve” to locate support and resistance. And at that point, Human and Computer work together.

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